Edited version of private ruling

Authorisation Number: 1011715271129

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Ruling

Subject: Assessability of an inheritance from a deceased estate

Question 1

Whether there is any tax payable by a beneficiary on an inheritance from a deceased estate?

Answer

No.

Question 2

If an inheritance is fully gifted to other individuals after it is received, is there any tax payable by the beneficiary?

Answer

No.

This ruling applies for the following period:

Financial year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

Your relative passed away in the financial year.

You are the executor and sole beneficiary of the estate.

Your relative had cash savings.

You intend to gift this amount less outstanding expenses to other relatives who were not named as beneficiaries in the deceased's will.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2).

Income Tax Assessment Act 1997 Subsection 6-10(4)

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1936 Section 97

Income Tax Assessment Act 1936 Paragraph 99B (2) (a)

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.

Other characteristics of income that have evolved from case law include receipts that are earned, are expected, are relied upon, and have an element of periodicity, recurrence or regularity.  

The distribution from capital/corpus of the trust is not a distribution of income from the trust and as such is not one of the categories of income from which income is generally considered to be obtained.  Neither is the capital distribution which the trust intends to make earned, expected or relied upon or have the element of periodicity, recurrence or regularity.  As the capital distribution is not income, then it is not assessable under section 6-5 of the ITAA 1997 as ordinary income.

Subsection 6-10(4) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.  

Section 10-5 of the ITAA 1997 lists those provisions about statutory income. Included in this list is section 97 of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with present entitlement to the net income of a trust estate.  

Subsection 97(1) of the ITAA 1936 provides that where a beneficiary of a trust estate who is not under any legal disability and is presently entitled to a share of the net income of the trust estate, the assessable income of the beneficiary shall include:

· so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident, and

· so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia.

A distribution of the corpus of a deceased estate is not income according to ordinary concepts. However, it must be considered whether any statutory provision includes it in assessable income. The relevant provision in this case is section 99B of the ITAA 1936.

Paragraph 99B(2) (a) of the ITAA 1936 provides that an amount representing the corpus of the trust estate, paid or applied for the benefit of a beneficiary is not included in the assessable income of the beneficiary.

The corpus of a trust estate is the capital of the trust estate.

Accordingly, the payment from the trust that represents the corpus would not be assessable under section 99B of the ITAA 1936

There are no CGT consequences for you under the CGT provisions.

Additionally there are no income tax consequences for you if you subsequently gift this amount to others.